Cash Balance and
Defined Benefit
Designed for high income earners to defer current year taxes and save for their retirement future.
Get a quoteWhat is a Cash Balance plan?
A Cash Balance plan is an advanced retirement savings plan that allows high income earners to significantly boost their retirement savings and defer current year taxes.
A Cash Balance plan is normally added to an existing 401(k) plan. This highly customizable arrangement provides simple retirement income projections and allows for substantially increased contribution limits that are determined by age, compensation and employee group.
How does it work?
Cash Balance plans are a pool of trustee directed funds. Account balances grow each year in two ways: employer contributions and annual interest credits. The plan document specifies the annual interest rate credit, meaning investment performance does not change the amount guaranteed for each participant. If investments overperform it will not change what is owed to participants, but if investments underperform it will increase the amount to be funded over time. Conservative investment management is therefore important.
Who is best suited for a Cash Balance plan?
High income earners looking to save more
A Cash Balance plan lets a consistently high income earner save more for retirement than a traditional 401(k) or IRA allows. Contribution limits are typically much higher, which makes them attractive to people already maxing out their 401(k).
Professionals ready to save $100k or more per year
Because contributions are tax deductible, high earners can use the plan to reduce taxable income and potentially lower their tax bill. Cash Balance plans are typically only available through an employer or self-employment.
Those looking for advanced plan design
Designing a Cash Balance plan is complex. It involves setting a target benefit level, determining contribution levels, and selecting an appropriate interest crediting rate, among other factors.
- You have consistent, excess cash flow
- Owners or key employees want to save more than $50,000 into their retirement accounts
- You already contribute 3% to 4% of employee salary and are prepared to fund approximately 8% to 10%
- You are comfortable with advanced plan design
- You have a good administrative partner for support
- Plan must be set up with the intention of being permanent, a minimum three to five year commitment
- Changes in plan demographics may impact contribution requirements
- Minimum funding may be required
A dedicated team focused on you and your employees.
Tell us your goals and we will design the plan that gets you there. Call (858) 257-3555.